Processing the South32 Demerger from BHP Billiton Ltd.

Legacy KB ID: 5293

Question

How to I record the Demerger of South32 (S32) from BHP Billiton Ltd (BHP)?

Answer

Users need to refer to documentation sent them by BHP Billiton Ltd.  A public summary is available at:

https://www.bhpbilliton.com/home/investors/news/Documents/2015/150610_DemergerofSouth32AustralianTaxationInformation.pdf

Any questions on how this demerger impacts on their accounting, tax treatment and capital gains tax liabilities should be addressed to their accountant.

The following guide is for a simple scenario.  Depending on the users’ requirements additional transactions may be required. 

 

Basic elements of the demerger (in-specie dividend)

Date of transaction:  25/5/15

Volume-weighted price of first 5 days of trading (determined by ATO): 

          BHP:  $29.44

          S32:  $2.25

Weighting of original BHP Cost Base assigned to the new entities (determined by ATO)

          BHP: 92.9%

          S32:   7.1%

As each shareholder acquired BHP shares at different prices, each shareholder will have a different original Cost Base in dollar value, and consequently a different cost base for the new entities. 

However, the percentages to the original cost base will be the same.  After the transaction has been completed the total Cost Base of the two entities will be the same as each shareholders’ original BHP Cost Base. 

 

Steps in Reckon Accounts Personal range.

Corporate Spin-off method

1.    Investing > Broker Account > Enter Transactions

2.    In Enter transaction:, select Corporate Securities Spin-off

3.    Transaction date:  25/5/15

4.    Security Name:  BHP Billiton Ltd

5.    New Company:  South32

6.    New shares issued:  1.0000

7.    Cost per old share:  29.44

8.    Cost per new share: 2.25

9.    Enter a memo

10. Click enter Done

In your transactions listing you will see a RtrnCap transaction for the reduction of the cost base for BHP and a Bought transaction for South32 for the same amount.  Your price per share for South32 will be the amount of the return of capital divided by the number of shares allotted to you (equal to your current holding of BHP shares).

 

Alternate Method

Separate transactions for Return of Capital and purchase of shares

1.    Calculate the amount of Return of Capital for your holding:

(your cost base BHP) x 2.25 / (2.25+29.44)

2.    Investing > Broker Account > Enter Transactions

3.    In Enter transaction:, select Return of Capital

4.    Transaction date:  25/5/15

5.    Leave the Transfer Account blank

6.    Enter a memo

7.    Security Name:  BHP Billiton Ltd

8.    Enter the amount calculated in Step 1

9.    Leave Market Value blank

10. Click Enter/New

11. In Enter Transaction, select Buy – Shares Bought

12. Transaction date:  25/5/15

13. Enter a memo

14. For Use cash for this transaction, use From this account’s cash balance

15. Security Name:  South32

16. Number of Shares, use the same number as your BHP holding

17. Price paid is (return of capital BHP) / (no of shares BHP)

18. Click Enter/Done

In your Transactions Listing you will see a RtrnCap transaction for the reduction of the cost base for BHP and a Bought transaction for South32 for the same amount.

 

CGT effects

Shares held for longer than 12 months attract a 50% discount.  South32 shares are deemed to be held from the same date the BHP shares were acquired.

If this condition applies to you and you wish to sell your South32 shares within the year, then you will need to process this demerger with the date of your original purchase.

For further information view the discussion at:  https://community.reckon.com/reckon/topics/how-to-carry-out-demergering-of-a-company or see your accountant.


Need more help?

Ask the Reckon Community at: https://community.reckon.com/

Or Log a Support Ticket: https://www.reckon.com/au/support/

How did we do?

Error: Unable to verify active printer at the system level

When I perform an Easy Action to record an Income Event using the Fund/Trust Distribution field it uses the _CapGnDst category.

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